Navigating Emerging Markets: 15 Years of Investment Insights

Over the past 15 years, Sarona Asset Management has navigated the complexities of investing in emerging markets, continuously refining its approach to balance financial returns with impact. Our experience has provided valuable insights into what works, what doesn’t, and the realities of responsible investing that are often overlooked. This article distils key lessons learned, focusing on actionable takeaways for investors looking to succeed in these dynamic markets.

1. The Challenge of First-Time Fund Managers

One of our core lessons is the difficulty of working with first-time fund managers. While these managers often bring innovative ideas and deep local knowledge, they also present higher execution risks due to limited track records and institutional weaknesses. We mitigate these risks by emphasising rigorous due diligence, governance support, and hands-on engagement. Investors should be prepared to provide strategic guidance and facilitate peer learning to enhance their partners’ capabilities.

2. Avoiding the Pitfalls of Mixed Investment Strategies

A common misstep in emerging market investing is blending multiple investment strategies without precise alignment. We have seen instances where funds attempt to combine venture capital with later-stage private equity or mix impact-driven capital with purely financial mandates, leading to conflicting incentives and suboptimal outcomes. Success in these markets requires strategic discipline—ensuring investment theses are well-defined, execution capabilities match the strategy, and alignment exists between investors and investees.

3. The Critical Role of Currency Risk Management

Currency fluctuations remain one of the most persistent challenges in emerging markets. Over the years, we have observed how poorly managed foreign exchange risks can erode returns, even in high-growth investment opportunities. While hedging instruments exist, they are often expensive or unavailable in frontier economies. Our approach has prioritised businesses with natural hedges—those generating revenues in hard currencies or with strong local supply chains. Investors must factor currency risk into their decision-making and consider structuring investments to mitigate exposure.

4. Realities of Successful Exits

Exiting investments in emerging markets is rarely as straightforward as in developed economies. Liquidity constraints, regulatory barriers, and political instability can all impact exit timing and valuations. Over our 15 years, we have seen the importance of planning exit strategies early – identifying multiple potential buyers, nurturing secondary market interest, and ensuring businesses are built with sustainable, long-term value creation in mind. A well-thought-out exit plan is just as crucial as the initial investment thesis.

5. Investing in Emerging Markets is Not as Risky as Perceived

A common misconception is that investing in emerging markets is inherently tricky and risky. However, these markets can offer strong returns and impactful opportunities with the right local partners, extensive due diligence, and a disciplined approach. Over 15 years, we have developed deep expertise and relationships to navigate these challenges effectively. Our experience has shown that local knowledge and partnerships are crucial in mitigating risks and unlocking value. Rather than seeing emerging markets as overly complex, investors should recognise the opportunities with the right strategy and execution.

6. Turning Setbacks into Opportunities

No investment strategy is without challenges, and emerging markets bring heightened risks, from economic downturns to geopolitical shifts. However, setbacks have often provided some of our most significant learning opportunities. For example, when faced with underperformance in certain portfolio funds, we leveraged these experiences to refine our selection criteria and strengthen portfolio monitoring. The key is resilience—adaptability and willingness to iterate based on real-world outcomes.

7. The Evolution of Impact Measurement

Fifteen years ago, impact measurement was primarily qualitative. Today, investors demand rigorous, data-driven metrics to assess financial and social performance. We have evolved our approach by integrating ESG and impact measurement into our investment decision-making, using frameworks that balance accountability with practicality. The future of responsible investing lies in finding the right balance between measurement complexity and actionable insights.

Looking Ahead

As we look to the next decade, the lessons from our journey will continue to inform our approach. Key priorities include deepening our focus on climate resilience, supporting fund managers with strong financial acumen and social impact, and leveraging technology to enhance investment efficiency. Emerging markets remain among the most promising yet challenging landscapes for investors, and long-term success requires both wisdom and action.

RIA Disclaimer

The views and opinions expressed in this article are solely those of the authors and do not necessarily reflect the view or position of the Responsible Investment Association (RIA). The RIA does not endorse, recommend, or guarantee any of the claims made by the authors. This article is intended as general information and not investment advice. We recommend consulting with a qualified advisor or investment professional prior to making any investment or investment-related decision.

Author

Patrick Hergt

Partner, Head of Business Development

Sarona Asset Management

Patrick leads Sarona’s business development efforts, including Investor Relations, Marketing and Fundraising. Over the last twelve years, Patrick has served many aspects of the business, most notably as Director of our private equity practice. He has engaged with the impact investing community since joining the company and has represented Sarona at both a community and global level, from speaking and mentoring at local universities to meeting with heads of state at the United Nations. Today, he serves as the Vice-Chair on the Board of the Canada Forum for Impact Investment and Development. Patrick started his career in private equity as an analyst with Munich Private Equity Partners. He holds an honours degree in business administration from Brock University, a BSc in general management from EBS University, and is a CFA® charter holder.